- CFA Exams
- Dec. 2020 Level 1
- Study Session 7. Financial Reporting and Analysis II
- Reading 23. Understanding Cash Flow Statements
Reading 23. Understanding Cash Flow Statements
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Learning Outcome Statements
|Reading 23. Understanding Cash Flow Statements|
|1. Classification of Cash Flows and Non-Cash Activities|
a. compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items;
b. describe how non-cash investing and financing activities are reported;
c. contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP);
|2. Preparing the Cash Flow Statement|
d. distinguish between the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method;
e. describe how the cash flow statement is linked to the income statement and the balance sheet;
f. describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;
g. convert cash flows from the indirect to direct method;
|3. Cash Flow Statement Analysis|
h. analyze and interpret both reported and common-size cash flow statements;
i. calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios.